Most retailers suffered through the first months of the coronavirus pandemic -- for two reasons. The crisis pushed discretionary items to the bottom of shopping lists. And it kept shoppers out of physical stores. But this moment in time also gave us an opportunity to evaluate future retail winners. It marked a change in how consumers shop. And we saw how retailers fared and responded to this new environment.
The following three stocks successfully managed the crisis. And, moving forward, each of these retailers has what it takes to satisfy today's shopper. So, without further ado, here are my top retail stocks to watch in March.
Target's (TGT 1.26%) digital platform and pickup options aren't new. The company's digital sales had been growing by more than 25% annually for six straight years through 2019. And the retailer has offered order pickup for about five years. But last year, these strengths helped Target flourish. In 2020, Target's sales growth of about $15 billion was greater than its sales growth over the previous 11 years combined. The retailer benefited as shoppers opted for contactless experiences.
What's encouraging is that Target continued to post triple-digit digital sales gains and growth in pickup services even in the last quarter of the year. By then, most states had lifted stay-at-home orders. This supports a McKinsey & Co. prediction: Consumers will continue to favor online shopping even after the pandemic ends.
At the same time, stores themselves remain a key part of the Target picture. The company fulfilled more than 95% of quarterly sales through its stores during the past two quarters. Here's why this is significant: Using stores to fulfill online orders (versus shipping from a warehouse) saves Target money.
I expect this combination of smart use of stores and digital strength to keep Target's revenue climbing.
TJX Companies (TJX -5.76%) benefits from two things: its off-mall locations and the combination of a treasure hunt experience with bargain prices it offers to customers.
First, let's talk location. You'll find this off-price retailer's Marshalls, T.J. Maxx, and Homegoods stores in plazas close to where people live and work. So, TJX isn't hurt by the drop in foot traffic in malls. Now, what do I mean by treasure hunt? Shoppers never know exactly what they'll find at a TJX store -- or if they'll find it again on their next trip to that store. And discounts are steep. That means if customers find something they like, they just might buy it.
Those two features have kept TJX's annual sales and profit growing for most of the past 30 years. These days, temporary store closures due to the pandemic still are hurting TJX. But the trend in stores that are open is positive. Sales improved from month to month in the fourth quarter -- and moved into positive territory in January.
Another plus is TJX's management of liquidity. The company finished the fourth quarter with more than $10 billion in cash. And recent efforts to cut borrowing costs will result in $32 million in annual savings.
Nike (NKE 1.47%) shifted its focus to digital and direct sales to consumers back in 2017. And that was a smart move. These strengths buoyed Nike amid temporary store closures last year. The retailer's apps kept it connected with fans through the pandemic. For instance, fans flocked to Nike Training Club for workouts and tips. And that led to gains in online sales, Nike has said.
As mentioned above, e-commerce growth won't come to an end after the pandemic. So, Nike is likely to benefit well into the future. The most recent earnings numbers offer more evidence. Nike digital sales worldwide climbed 84% in the quarter ended Nov. 30. That includes triple-digit growth in North America.
Two other elements should boost Nike's revenue into the future. People are telecommuting more and more these days. And they're favoring casual clothing. Along these lines, Nike noted a "permanent shift" into athleticwear in its most recent earnings call. And finally, the progressive return of professional sports is another bright spot for Nike. It offers the company opportunities to design special collections and market its products to sports fans.
Now, you might ask: Why watch Target, TJX, and Nike right now? Well, after posting double-digit gains last year, these stocks have slipped so far this year.
We're not talking major losses. But enough of a dip to offer a buying opportunity. Along with all of the points mentioned above, this is one more reason to consider these three retail stocks this month.